| Date | May 2017 | Marks available | 15 | Reference code | 17M.1.HL.TZ2.01 |
| Level | Higher level | Paper | Paper 1 | Time zone | Time zone 2 |
| Command term | Discuss | Question number | 01 | Adapted from | N/A |
Question
Explain how an increase in the costs of factors of production would affect the market price and output of a good.
[10]
a.
Discuss the consequences for different stakeholders in the economy of the government providing subsidies on goods, such as renewable energy.
[15]
b.
Markscheme
Answers may include:
- definitions of factors of production, market price
- diagram to show the effect of an increase in costs of factors of production (leftwards shift of supply)
- explanation of why an increase in costs of factors of production will decrease product supply and ceteris paribus increase the price and reduce output
- examples of costs of factors of production increasing.
Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.
a.
Answers may include:
- definitions of subsidies and stakeholders
- diagram to show the full impact of a subsidy, eg cost to government, reduction in price to consumer
- explanation of the potential consequences for consumers, producers, government and society
- examples of the use of subsidies in practice
- synthesis or evaluation (discuss).
Discussion may include: the importance of price elasticity of demand, opportunity cost issues, externality issues, equity issues and efficiency issues.
Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.
b.
Examiners report
[N/A]
a.
[N/A]
b.
